The Credit Crunch - It Is Real!

Last week I joined an independently run advisory board of like-minded people in finance discussing the issues facing our industry. We all agreed the job losses have not really begun, and that the end loser could actually end up be the consumer looking and needing financial advice because advisers costs will be too high to give it!

Many advisers are saying right now that to take on a new client is not worth the cost? The risks and costs to a practice to simply service an existing client means an increase in fees due to the increase in administration. And remember this is advisers that have not had client complaints or been charged with any misconduct.

In addition to that, on the finance side loans are going to be and are already harder to get, with a recent survey suggesting mortgage rejections have increased by more than 1300%.

So what does this mean for you? Well with refinancing rejections up significantly as banks rattled by the royal commission drastically tighten borrowing rules. In short, it means your stuck with your current lender!

Loan sizes are being slashed by 30 per cent, trapping many financially stressed customers including some who have been slugged with “out of cycle” interest rate rises. House hunters are also being hit by the credit crunch, with dramatic implications for property markets. The crunch stems from two big shifts in the way banks judge borrowers.

Expense estimates have been raised substantially — the minimum outgoings for an average household are now assumed to be a third higher, according to bank analysts UBS.

On top of this, granular cost breakdowns must be provided. After the royal commission revealed in March that expense checks were so lax as to be borderline illegal, new tests have been imposed requiring in some cases detail of weekly, fortnightly, monthly, quarterly and annual spending in as many as 37 categories from alcohol and haircare to shoes and pets, as well as doctor visits.

As a result, we think that now four in 10 households would now have difficulty refinancing. That means you are basically a prisoner in the loan you’ve currently got. This is based on our 52,000 household surveys plus data from a range of official sources. We estimate that 31,000 households’ refinance applications were rejected in July versus 2,300 in August last year.

If you want to discuss your leverage position, whatever it may be please do not hesitate to contact us, there are no stupid questions in this credit environment.